Screenshot from Elliot Loh, who was reading Serious Eats on his phone when a McDonalds McChicken Deluxe ad served up at the bottom of an article about whether or not McDonalds hamburgers decompose over time. Who knows, maybe an article beating up on McDonalds hamburgers boosts sales by making McChicken Deluxes sound relatively more appetizing.

From the IAB’s report on US ad spending for 2012. Digital ad spending is up 15% over 2011, with retailers (20%) and financial services (13%) representing the biggest spending sectors.

It’s interesting, though, to imagine this chart (as I’ve hacked together, above) if you remove one company from it, Google. When you subtract out international revenue and the former Motorola business (see Marketing Land), and you multiply the difference by 96% (the share of Google’s revenues that come from advertising), Google’s US ad revenues for 2012 were nearly $19 billion. Pulling Google out of the mix, US advertisers spent less than $18 billion on internet advertising last year — somewhere between newspapers and radio.

A chart created by Alan D. Mutter that plots US newspaper ad revenues against Google’s revenues (almost all of which are advertising). Note: Google numbers are global, while the newspaper numbers are US only. Google’s US revenues are closer to $16 billion.

The speed with which billions of dollars in advertising revenue simply evaporated over the past decade is incredible: as [economics professor Mark Perry] notes, after adjusting the figures for inflation, total print ad spending last year of about $19 billion was below the level set in 1950. It took 50 years — a generation, in other words — for ad revenue to go from $20 billion to a peak of $65 billion in 2000, but it only took 12 years for that progress to be erased.

Last week the San Francicsco Chronicle launched a paid-subscription version its website behind a paywall ($12/month if you don’t already subscribe to the print edition), and the Washington Post plans to do the same later this year. In erecting paywalls, of course, neither qualifies as a trailblazer. Soon it will be hard to find a traditional newspaper that does not charge for access to some or all of its website. But in these early days, it’s also pretty hard to find an example of a newspaper (other than NYT) that’s experiencing gigantic success with its subscription digital product.

Eliza Kern, a 22-year-old reporter for GigaOM and PaidContent, argues that it will be an uphill battle for online publishers hoping to win subscription dollars, especially with respect to her generation of readers:

When I asked if anyone would pay for this content themselves if their parents stopped paying, hardly anyone said they would. The only media that most people said they would pay for was Netflix, and a few said they would subscribe to avoid paywalls on their local newspapers.

While she admits her survey isn’t statistically valid, she is surfacing the larger dilemma faced by nearly every digital publisher. CPMs — cost per thousand ad impressions — for digital advertising have always been lower, in most cases, than CPMs for print advertising. While industry-watchers predict rising CPMs across the Internet as a whole,

the bad news is that this CPM increase will be largely driven by adoption of the “viewable impression” standard, where advertisers pay only for for ads that are visible on the screen. For a lot of publishers this will mean fewer impressions, which could offset some of the CPM gains.

In other words, moderate improvement in CPMs coupled with a larger decline in valid ads per page will leave many publishers with less revenue per thousand pageviews (RPM). So it’s no surprise that the Chronicle and the Washington Post are launching paywalls; every digital publisher wants to bolster the income statement with paid subscriptions.

Nor should it be a surprise that while digital publishers want us to pay a subscription to read their unique, high-quality coverage, many are also chasing increased advertising revenues by churning out more, lower-quality content. On the surface anyway, the logic is simple: If revenues per pageview (the R in RPM) are going down, then increase the number of pageviews (the M) on which you can sell ads. The Huffington Post, for example, claims to publish between 1600 and 2000 articles a day, which works out to one new content nugget every minute. (Or there is the ad heavy / content light approach at Seattle PI.) It’s a great strategy for boosting pageviews — there’s something for everybody, there’s lots to share in social media, and there are headlines that will show up in search results for almost anything anyone could search for. But it’s also hard to maintain quality at a factory that pumps out widgets with that kind of velocity. What’s great for topline pageviews, I’d argue, isn’t likely to capture bottom-line reader immersion or a desire to pay attention with any kind of intensity — the kind of intensity that motivates us to pay for a publication because we can’t live without it.

And it doesn’t capture the kind of reader attention that makes advertising work. The volume strategy drives more ad impressions and unique users, but the amount of time a reader might spend with each content piece will almost certainly decline — and with it, ad effectiveness. Click-through rates at Facebook, for example, are sliding as the site increases the number of ads per page. And if the pageview-chase increases ad impressions faster than ad dollars migrate online, publishers will face further downward pressure on rates.

I’m a fan of charging readers for great content, because I abhor the idea of a mediocre-content world. But before you ask readers for money, you first need an editorial formula that is so unique and so valuable that readers show signs of life-threatening addiction. That’s a tough aspiration if you’re banging out a story a minute, or if you’re fluffing your editorial output with wire stories that readers can find elsewhere. In my own experience, at publishers such as CNET and Digg, the let’s-pump-out-more-headlines approach inevitably leads to a corresponding dip in the engagement numbers — not exactly an equation for long-term business success if you count on renewals from advertisers and a growing audience of paid subscribers.

I wonder if it’s time for a more thoughtful approach to digital publishing. Figure out the stories you can own, the beats you can cover better than anyone else, and let the Internet’s content factories have the rest. You’ll lose out on a bunch of low-value ad impressions, but eventually advertisers will stop paying for low-value ad impressions anyway. In the meantime, you might just build a relationship with readers that opens their wallets.